created by Glenn Tamashiro

Hello and welcome. This site was developed to keep you informed about the various lessons and activities that are held in our Government/Economics and Honors Government/AP Macroeconomics classes.

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APMacro: Supply and Demand Project


 

Student Group

 

Choose a product of your own making and/or one with which you are familiar that will be affected by the dynamics of a market economy. Make up clearly stated headlines, which reflect each of the shifters / determinants that will cause a shift in demand and show how each will impact on your product. You must draw a separate graph for each factor. The headlines should fully explain the change! Do the same for the shifters / determinants that cause a shift in supply. You must draw a separate graph for each factor.

 

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PF: Insurance


types-of-insurance

Insurance can help you manage the risks of rare, but expensive events, throughout your life such as car accident, theft or fire. Without the protection of an insurance policy, you would be responsible for covering the loss you experienced. Insurance provides a way to reduce the risk of financial loss. The function of insurance is simply to restore your property and possessions to the point it was before the incident occurred, to re-establish normalcy in your life. The purpose of insurance is to spread risks out over many people. The economic structure of insurance is built around a system in which the cost of the losses of the few is shared among the many. Insurance can be viewed as a large pot into which all premiums are placed. The pot has to provide for payment of the losses of those who have claims. Insurance is all about managing risk and providing financial compensation in the event of a loss.

The decision to buy insurance depends on individual judgment about the future. The general guideline is not to allow a large portion of potential loss to remain uninsured. To illustrate some of the risks associated with choosing or refusing to purchase insurance, the class will participate in the big risk simulation activity. Students are to imagine that they have just graduated from high school. They own a number of assets that they are thinking of insuring, including an automobile, inherited jewelry, a rare coin set, and the contents of their rented apartment. Their employer provides a health insurance plan they can purchase. Students will examine the possible risks and dollar costs of insuring various things they would like to insure. They may not spend more than $2,900; they may spend less. Students will not be able to insure all items.

fanned-suit-clubs-playing-cards

Using a deck of 12 cards, students will pull a card from the deck to determine which items will be affected. Uninsured students will experience losses in all categories affected by pulling a card from the deck. The simulation represents five years. Students will pull a card five times. Shuffle the cards before choosing one for each year. At the end of the five years, the students should calculate the total amount spent for the five-year period.

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APMacro: Practice Supply and Demand Graphing


Chage in SUpply Demand and Equilibrium

Review for supply and demand. Graphing supply and demand, changes in supply (STORES), changes in demand (TOESIS), changes in equilibrium price and quantity, changes in quantity supplied, and changes in quantity demanded.

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PF: Investments


 

Investment-Pyramid_full

We invest money in everything from rare coins to real estate because we expect a favorable financial return in the future. However, not all investments turn out as we hope and expect. Nearly every kind of investment involves some sort of risk. For example, the price of rare coins or houses can go down as well as up. Risk is inherent in all investments. Some risks are ones investors cannot control. Other risks can be managed. Generally, there is a strong relationship between risk and reward. The higher the potential reward an investment offers, the higher the risk of losses rather than gains. Given that relationship, there is no free lunch in investing. Investors who choose low risk may earn meager returns. Investors who seek higher returns through high-risk investments may suffer big losses. The key is to develop a risk/reward ratio with which you are comfortable. Therefore, in choosing what to invest in it is important to weigh the various risks against the potential rewards. Today, students will learn about the five types of risk, and compare the risks and rewards associated with several frequently-used investment vehicles.

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APMacro: Supply and Demand Review


owlread

 

 

Supply and Demand Review

 

  • A market is any institution or arrangement that brings together buyers and sellers of a product, service, or resource.
  • Demand is a schedule or curve representing the willingness of buyers in a specific period to purchase a particular product at each f the various prices. The law of demand implies that consumers will buy more of a product at a low price than at a high price. So, other things equal, the relationship between price and quantity demanded is negative or inverse and is graphed as a downward sloping curve. Market demand curves are found by adding horizontally the demand curves of the many individual consumers in the market.
  • Changes in one or more of the determinants of demand: consumer tastes, the number of buyers in the market, the money incomes of consumers, the prices of related goods, and price expectations, shift the market demand curve. A shift to the right is an increase in demand; a shift to the left is a decrease in demand. A change in demand is different from a change in quantity demanded, the latter being a movement from one point to another point on a fixed demand curve because of a change in the product’s price.
  • Supply is a schedule or curve showing the amounts of a product that producers are willing to offer in the market at each possible price during a specific period. The law of supply states that, other things equal, producers will offer more of a product at a higher price than at a low price.Thus the relationship between price and quantity supplied is positive or direct, and supply is graphed as an upward sloping curve. The market supply curve is the horizontal summation of the supply curves of the individual producers of the product.
  • Changes in one or more of the determinants of supply: resources prices, production techniques, taxes or subsidies, the prices of other goods, price expectations, or the number of sellers in the market, shift the supply curve of a product. A shift to the right is an increase in supply; a shift to the left is a decrease in supply. In contrast, a change in the price of the product causes a change in the quantity supplied, which is a movement from one point to another on a fixed supply curve.
  • The equilibrium price and quantity are established at the intersection of the supply and demand curves. The interaction of market demand and market supply adjusts the price to the point at which quantities demanded and quantities supplied are equal. This is the equilibrium price. The corresponding is the equilibrium quantity.
  • The ability of market forces to synchronize selling and buying decisions to eliminate potential surpluses and shortages is known as the rationing function of prices.
  • A change in either demand or supply changes the equilibrium price and quantity. Increases in demand raise both equilibrium price and equilibrium quantity.Decreases in demand lower both equilibrium price and equilibrium quantity. Increases in supply lower equilibrium price and raise equilibrium quantity. Decreases in supply raise equilibrium price and lower equilibrium quantity.
  • Simultaneous changes in demand and supply affect equilibrium price and quantity in various ways, depending on their direction and relative magnitudes.
  • A price ceiling is a maximum price set by government and is designed to help consumers. A price floor is a minimum price set by government and is designed to aid producers.
  • Legally fixed prices stifle the rationing function of price and distort the allocation of resources. Effective price ceilings produce persistent product shortages, and if an equitable distribution of the product is sought, government must ration the product to consumers. Price floors lead to persistent product surpluses, and the government must either purchase the product or eliminate the surplus by imposing restrictions on production or increasing private demand.

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APMacro: Supply and Demand Complex Cases


We know that demand might change because of fluctuations in consumer tastes or incomes, changes in consumer expectations or variations in the prices of related goods. Supply might change in response to changes in resource prices, technology, or taxes. When both supply and demand change, the effect is a combination of the individual effects.

Complex Shift S-Increase D-Decrease
When supply increases and demand decreases, both changes decrease price. Therefore, the net result is an equilibrium price drop greater than that resulting from either change alone. The effects of the changes in supply and demand on equilibrium quantity are opposed, therefore indeterminate. The increase in supply increases equilibrium quantity, but the decrease in demand reduces it. The direction of the change in quantity depends on the relative sizes of the changes in supply and demand. If the increase in supply is larger than the decrease in demand, the equilibrium quantity will increase. But if the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease.

Complex Shift S-Decrease D-Increase
A decrease in supply and an increase in demand both increase price. Their combined effect is an increase in equilibrium price greater than that caused by either change separately. However, their effect on equilibrium quantity is indeterminate, depending on the relative sizes of the changes in supply and demand.If the decrease in supply is larger than the increase in demand, the equilibrium quantity will decrease.If the increase in demand is greater than the decrease in supply, the equilibrium quantity will increase.

Complex Shift S-Increase D-Increase
What if supply and demand increased? A supply increase causes a decrease in price, while a demand increase causes a n increase in price. This makes equilibrium price indeterminate. If the increase in supply is greater than the increase in demand, the equilibrium price will decrease. If the opposite holds, the equilibrium price will increase. The effect on equilibrium quantity is certain. The increase in supply and the increase in demand raise equilibrium quantity. Therefore, the equilibrium quantity will increase by an amount greater than that caused by either change alone.

Complex Shift S-Decrease D-Decrease
Finally, what about decreases in both supply and demand? Their effect on equilibrium price is again indeterminate. If the decrease in supply is greater than the decrease in demand, equilibrium price will increase. If the decrease in demand is greater than the decrease in supply, equilibrium price will decrease.Because decreases in supply and demand reduce equilibrium quantity, it is sure that equilibrium quantity will decrease.

The table below summarizes these four cases.
Complex Shifts Chart

Special cases arise when a decrease in demand and a decrease in supply, or an increase in demand and an increase in supply, exactly cancel out.In both cases, the net effect on equilibrium price will be zero. Equilibrium price will not change.

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APMacro: Supply and Demand Graphing Practice


A market moves to a new equilibrium when there is a shift in either supply (STORES) or demand (TOESIS) which changes the equilibrium price and quantity.

Demand Shifts

 

A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service. A change in demand is a shift in the curve whereby more or less is demanded at every price. Changes in preferences incomes, expectations, population, or the prices of complementary or substitute goods will cause a change in demand.

Demand increases = price increases and quantity increases
Demand decreases = price decreases and quantity decreases
 

 

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Supply Shifts

 

A change in quantity supplied is a movement along the supply curve and can be caused only by a change in the price of the good or service. A change in supply is a shift of the curve whereby more or less is supplied at every price. A change in government action, technology, in production costs, expectations, or in the number of sellers (firms) will cause a change in supply.

Supply increases = price decreases and quantity increases
Supply decreases = price increases and quantity decreases

 

 

 

Arrows-02-june

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